Apr 192010

I’m sure to many we must look like we had a crystal ball today, but the market structure was in a word, obvious to an experienced trader. As predicted the gap closed on a ripping rally off the open. We were just oversold on nonsense. When there are no institutional short sellers due to ETF and Mutual Fund regulation – along with the mark to market, “free money” long trade as we call it, things like the GS news will result in what appears to be initial catastrophe, but then will snap back hard at least part of the way. From the volume structure on Friday we felt quite confident that the 89 and 93 handles would frame the morning and as you can see we had it dead on. Trades were pretty much direct from my pre-market sheet in the various accounts, almost to the tick although liquidty wasn’t so great for getting size on. Anyway, we bought 86.25 and came out at 88. Then we sold 89 back into 87.50. Then we bought 90 into 92. Then we scalped the top on the way back down selling 92.25 back into 91.00. After there we couldn’t call it. It seems to be selling off pretty hard now, but we won’t look at anything until maybe the 83 handle which as we said may be a good fade opportunity. But again, watch out there as it may actually decide to prop itself up anywhere between 83 and 81 somewhere. Danger Will Robinson. UPDATE: It did just come down to the 83 handle which I scalped for another tick. If it holds a test of 81 I will consider trading back into 84 or so. This is an unheard of day for us to have that many trades. 6.75 points so far.

 Posted by at 11:58 am

  8 Responses to “4/19/2010 Post Trading Analysis”

  1. My premarket levels were fade a move up to 89, or the down to 83. The 89 fade was where I flipped my coin..my reasoning was I saw the net volume traded increasing between 9:35 to 9:36, but volume breakdown between the same bars showed the buying drop off so I took it…by 9:38 buy/sell volume breakdown was about even and price was back to vwap. I had already bailed for a few ticks, but it was one good trade for the day, based on a plan.

    • Yeah that was an afterthought for me. I traded it but pre-market I didn’t love it as it spent so much time there Friday I felt it wouldn’t hold easily. I felt strong about the gap fill long though. I just felt better about the 93 fade as that was higher probability based on market structure. In any event, we nailed them all today, and I’m glad you are turning over a new leaf and planning your day down to a single trade. Keep in mind, most all of our accounts are single trade accounts each day. We just post all the trades taken by different partners in different accounts.

      • I see now why the 93 fade was higher probability in terms of market structure, and probably was better risk reward as well. Thanks for the feedback in all these posts, it is great insight and helps a lot.

        • Yes, 89 was rejected overnight, but was also a major acceptance area Friday afternoon.When I see that I can’t help but wonder if the market won’t want to move quickly through it to see what lies ahead since it is so comforable with that as value. I also felt that even if it did reject hard the market had no need to grind away between 84 and 86 as that had already been well established. There is a shelf that forms around 94.50 to seeing if there is a rejection right under there as evidenced by that extremely low volume was going to be important for the market. As you see it was. So much so the market ran all the way back to the OL to see if it would hold. All common sense really. You just have to get used to seeing the market based on its participants and what is really going on. It is all BS really once you figure it out. Human emotion can be quite transparent…

  2. In terms of market profile how would you describe todays profile? It had a larger than average IB which led me to anticipate a reversal/ rotation which happened. To me this looked like a Normal Day but then it started balancing lower below the open, which looks more like a double distribution day or Normal Variaiton. Since it already change direction at 1193 I am ruling out a DD day and saying it was a Normal Variaiton. This means it is possible for the close to be back in the IB rather than head lower. What do you think?

    • To be honest, we aren’t market profile guys per se. I’m not really into market structure after the fact as to me it is just another lagging indicator. I really don’t care much for time at price as it doesn’t mean anything to me. Back in the day, MP was invented to help us when we were running tickets on the floor. We didn’t have Globex and tick by tick volume info. Now that we do, the time at price is useless to me. I’m only interested in what is actually printing at price. Don’t get me wrong, I know for some it is useful and if it is to you more power to you, it just isn’t our thing. We trade auction theory but we trade that just like we trade real estate and venture capital or whatever. Very simply. We trade rejection and acceptance of price as evidenced by the immediate trading in the order flow. If houses in your neighborhood have only sold for 500k and a potential buyer walks up to your house which you just listed for 750k, what will he do? Turn and walk away. Rejection. Then he will go to the 500k guys and try to make a deal for 400k or something and then they will accept or reject based on supply & demand. This is the closest to understanding our trading you can get. Just rejection and acceptance, that is it and then confirming by reading open orders and prints and spotting exhaustion and diminishing quality of prints. We never attempt to predict market direction other than to handicap the levels we trade with some sense of the strongest or weakest side at the moment of truth. I look at prices in a vacuum as a means to an end. Was this price rejected or accepted the last time we traded through it? Once I know that, I’m handicapping the likelyhood the level holds or fails based on all of our sentiment, internals, cross correlations, & feel we have developed over the last 20+ years. So today for example I know I’m only going to trade the first hour unless a lot of stuff happens quickly and I know ahead of time the prices I’m interested in and my opinion of what I think will happen at those prices. Today, the levels (rounded to “ish” values) we were interested in were basically 86, 89, 93 on the high side and 83, 81 on the low side. I felt the big picture, institutional activity overnight & the morning and Citi earnings were enough to buy a break above the high volume 86 handle into the OH restest. I didn’t feel the OH would hold so I just scalped it and then it ended up giving us a full rotation anyway. I knew I would buy above the volatility surrounding 89 if it got traction around 90 and did. I knew I would definitely fade 93 as well. I was quite surprised we retraced down to the OL, but as I said in the pre-market I was going to be cautious about that 81 handle as it was a trap. the real key level was 83, so I scalped that then waited for exhaustion of 81 to buy for a long back into 84 or so. I say all this because I’m not trading the profile. I’m forming an opinion about every significant high and low volume price only and trading them by feel and reading the order flow. I will only enter on exhaustion with weak retail traders getting trapped chasing breakouts. Basically, all my fade trades are market maker moves much like we would trade from the floor. Running stops with the specialists in tamdem with pit locals. I will cover that in the 3rd webinar. Hopefully, a lot of what we are jabbering about will make sense from the webinar if anything I say doesn’t make sense.

      • Thanks for the comprehensive reply, I have been experimenting a lot with MP and I have found a lot of strong correlations with its various structures and future price action. I have not used Market Delta yet as I was trying to master one thing at a time, It is the next logical step for me to follow your example and analyse volume, acceptance and rejection at key levels. You make perfect sense, the lagging indicator is me at the moment.

        • Just to be clear though, we are also in the algorithmic trading end of things and our biggest pools of capital are run through plenty of lagging indicators. Nothing wrong with lagging at all. We just find that they are of most use to us in longer time horizons and with rigid, systematic trading. You have to understand, we are all old dogs born out of the glory days in the pits and we still trade that way intraday. Price and volume and good discretion. Nothing else. Not saying it is the only way. Just that it is our only way. Intraday trading is very two dimensional to us. A binary proposition at each key level. The most important aspect is to make sure you are trading levels that are important to ALL timeframe traders from position on down. The problem a lot of retail traders that trade 1 or 2 or 5 minute or worse (tick charts) have is that most of the patterns they try to trade are noise. If you are trading the key levels it is the truth. Binary. Somebody wins, somebody loses. Right or wrong. You have to piece the puzzle together. We prefer to be right as much as possible. lol. And as you can see we are more often than not, but that really comes from experience and feel. The best info someone like you can get from us is to read the pre-market commentary witten part very carefully and between the lines. That is where we really reveal what levels we tthink will break or hold and as such where the better fade and/or break opportunites are.

          I will also say that having a good sense of the market structure as you claim to have put togteher this far will be even more powerful when you learn to read order flow. You will catch a whole other gear. Our method is as good as any as it was born of a very”pit” way of doing it then moved to the DOM and tape and now adapted to Market Delta. We are doing 3 webinars and that will be the third. The first one next Tuesday is kind of an introduction. The second one is on trade identification and hypothesis generation. Hopefully, we can nail them and they will be useful to you in some way.

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